Source: Federal Reserve Board (Gilchrist-Zakrajšek)
Data through: July 2026 · updated Aug 7 · Updates: Monthly
MThe three bars show the last 3 months (end-of-month values) for this indicator, oldest left to newest right. Bar height reflects each reading relative to the other two — the tallest is the highest of the three, the shortest the lowest.
Historical context: Currently in the 17th percentile — near historically low/favorable levels.
What this means right now: EBP is moderately negative — below-average risk premium; investors are comfortable holding credit risk. Credit conditions are easy and supportive of economic activity. No near-term stress signal.
Excess Bond Premium · Monthly · 1973–2026
Grey areas = NBER recessions · Scroll to read · zoom and pan in Expand
Monthly values
Excess Bond Premium — the last 12 months
Every month's reading, with the band the heatmap gives it. The chart above shows the same series in full.
Month
Value
Band
Jul 2026
-0.32
Healthy reading
Jun 2026
-0.30
Healthy reading
May 2026
-0.39
Healthy reading
Apr 2026
-0.21
Healthy reading
Mar 2026
-0.27
Healthy reading
Feb 2026
-0.26
Healthy reading
Month-end readings of the same series the chart shows, from ebp. Values are the current record, not point-in-time: a month that has since been revised shows its revised value.
What is the Excess Bond Premium?
The Excess Bond Premium (EBP) is the extra yield corporate bonds pay beyond what default risk alone explains — the market's fear premium. Federal Reserve researchers (Gilchrist & Zakrajšek, 2012) split corporate bond spreads into two parts: compensation for expected defaults, and everything left over. The leftover part is the EBP.
It matters because the fear premium moves before the economic data does: when lenders get nervous, the EBP rises months ahead of the slowdown it warns about — one of the best-documented early signals of credit stress and recession in the academic literature.
How to read it: the EBP is signed and centered on zero. Near zero means normal credit conditions. Positive means investors are demanding more compensation than defaults justify — fear is rising and credit is tightening. Negative means they are accepting less than defaults justify — calm, sliding toward complacency the deeper it goes. Unlike most indicators here, the "good" reading is near zero or mildly negative, not simply "low": a deeply negative EBP is froth, not health.
How We Color-Code the Excess Bond Premium
Our heatmap colors each indicator based on historically significant thresholds:
< -0.5
Very calm/complacent — credit risk premium far below average; bottom 5% of history. Potential overconfidence signal.
-0.5 to 0
Below average — investors comfortable with credit risk; spreads tighter than expected defaults justify
0 to +0.5
Normal — risk premium near average; credit conditions stable. Includes roughly p50-p82 of history.
Crisis — GFC-comparable credit stress; top 3% of history. Credit markets are seizing.
Historical Extremes — What Happened Next?
When this indicator reaches extreme levels, history shows consistent patterns:
2008-10-01Post-Lehman Credit Freeze
+3.41
The GFC drove the EBP to its all-time high as corporate bond markets froze. Investors demanded a massive premium above default probabilities, reflecting extreme risk aversion and illiquidity. The Federal Reserve ultimately had to backstop corporate bond markets directly through extraordinary facilities.
2020-03-01COVID Credit Spike
+1.19
The COVID dash-for-cash caused a sharp EBP spike as corporate bond spreads blew out beyond what default expectations justified. The Fed's announcement of the Primary and Secondary Market Corporate Credit Facilities (PMCCF/SMCCF) in March-April 2020 rapidly compressed the EBP back below 0.
2003-07-01Post-Dot-Com Complacency Trough
-1.07
The deepest negative EBP in the series — investors had recovered from the dot-com bust and were so comfortable with credit risk that corporate spreads fell below actuarially fair levels. This type of EBP trough typically precedes the next credit cycle peak and eventual stress event.
Investor Checklist — Current Reading
Based on the current Excess Bond Premium reading of -0.32 (Positive):
✓Easy credit conditions supportive of growth and risk assets; monitor for EBP inflection toward 0 as early warning of turning cycle
Frequently Asked Questions
What is the difference between the EBP and a standard credit spread like the BAA spread?
A standard credit spread (like BAA minus 10yr Treasury) includes two components: (1) expected default loss — the actuarially fair compensation for holding a bond that may default, and (2) the excess bond premium — compensation for bearing the risk itself, beyond the expected loss. During calm markets, the EBP can be near zero or negative (spreads compress below expected-loss levels). During stress, both components widen, but the EBP often widens disproportionately. The EBP isolates the risk-appetite component, which is the more economically meaningful signal for predicting credit tightening.
Why is a negative EBP sometimes a warning sign?
A deeply negative EBP means corporate bond investors are so comfortable with credit risk that they accept spreads below the expected default loss — they are effectively paying above fair value for credit risk. This kind of investor complacency has historically preceded the buildup of fragility in credit markets. The 2003-2004 trough preceded the 2004-2006 credit expansion that culminated in the 2008 crisis. Similarly, the 2021 trough preceded the 2022 rate shock. Deeply negative EBP is a "all clear — maybe too clear" signal.
How quickly does the EBP respond to stress events?
The EBP is updated monthly, so its real-time sensitivity is lower than daily spread measures. However, because it strips out the default-expectation component, it tends to spike sharply in the month that an acute financial stress event occurs. The 2008-09 GFC cluster, the 2020-03 COVID spike, and the 1998 LTCM/Russia event all show as clear EBP spikes. Month-to-month changes of more than 0.3 during stable periods are rare and worth monitoring.
How is the EBP calculated at the Federal Reserve?
The Fed's EBP uses the Gilchrist-Zakrajšek (2012) methodology: they model expected credit spreads for individual bonds using observable firm-level characteristics (leverage, profitability, maturity, coupon) and then compute the residual between actual spreads and model-predicted spreads. The average residual across a large cross-section of bonds is the GZ spread component, and the EBP is the component of that residual not explained by default forecasts. The methodology is described in "Credit Spreads and Business Cycle Fluctuations" (AER, 2012).